Bond payments are secured by a pledge of the gross receivables of the
obligated group. Additional security is provided by a mortgage on seven
PHF hospitals and a negative pledge on the other hospitals.

KEY RATING DRIVERS

LOW DEBT BURDEN: PHF's light debt burden, with maximum annual debt
service (MADS) equal to 1.1% of fiscal 2015 operating revenue, allows
for solid MADS coverage despite modest historical operating
profitability and is primarily a result of the organization's receipt of
debt free hospital donations from PHSI. It is the expectation that
leverage will remain low over the near term.

MANAGEMENT TEAM EXPERIENCE: PHF's senior management team is the same as
Prime Healthcare Services, Inc. (PHSI), a large, multi-state for-profit
health system. As such, PHF's senior management team has significant
experience in hospital operations and specializes in turning around
financially troubled hospitals.

MODEST PROFITABILITY: Operating profitability has been light with
operating EBITDA margin averaging 6.3% since fiscal 2012 and equal to
6.0% in fiscal 2015. However, the pro forma impact of four new hospitals
added to PHF in fiscal 2016 and one hospital expected to be acquired in
fiscal 2016 materially compresses operating profitability based on
historical results.

RATING SENSITIVITIES

SUCCESSFUL INTEGRATION OF NEW HOSPITALS: The 'BBB+' rating reflects
Fitch's expectation that Prime Healthcare Foundation will successfully
integrate the new hospitals, reducing associated operating losses, and
improving consolidated cash flows to provide for coverage consistent
with the rating. Successful integration of the new hospitals resulting
in strong coverage could result in positive rating action. Conversely,
delayed turnaround of the new hospitals could result in negative rating
action.

FUTURE ACQUISITION ACTIVITY: PHF will likely continue to grow through
acquisitions and/ or additional donations from PHSI. The related rating
impact will be evaluated as additional hospitals are added to PHF.

CREDIT PROFILE

PFH, headquartered in Ontario, CA, was founded in 2006 by Prem Reddy who
had previously founded PHSI. PHSI was founded in 2001 with the strategy
of acquiring and turning around financially distressed hospitals. Since
2001, PHSI has grown to a nationwide system of 31 hospitals in 14 states
with total operating revenues of $3.3 billion in fiscal 2015. Since PHSI
donated PHF's first hospital in 2009, PHF has grown to 11 hospitals with
total operating revenues of $476 million in fiscal 2015. Fiscal 2015
operations included seven hospitals, six of which were donated debt free
from PHSI and the seventh hospital was acquired in 2013. PHSI donated an
additional hospital to PHF on Dec. 31, 2015 and PHF subsequently
acquired three additional hospitals in February 2016. Additionally, PHF
is in the process of acquiring a twelfth hospital with an expected
closing date in summer 2016 and an additional hospital is likely to be
donated to PHF in fiscal 2016.

PHF and PHSI are separate legal entities and are governed by separate
boards of directors with no overlapping members.

MANAGEMENT TEAM EXPERIENCE

PHF's senior management team has significant experience in hospital
operations and with turning around financially distressed hospitals.
Both PHF and PHSI are managed by the same senior management team through
management services agreements with Prime Healthcare Management Inc. The
combined entities currently operate 42 hospitals and have grown from 14
hospitals in 2011, primarily through acquisition of financially
distressed hospitals while maintaining solid operating profitability.
Fitch views the senior management team's experience favorably,
particularly with their experience in acquiring and turning around
financially distressed hospitals.

LOW DEBT BURDEN

PHF's light debt burden is primarily due to the majority of its
hospitals being donated debt free from PHSI. PHF had approximately $85.9
million of total debt outstanding at Dec. 31, 2015. The debt portfolio
is comprised of approximately $45 million of bonds issued on behalf of
Knapp Medical Center which was acquired by PHF in 2013, an approximately
$34.5 million line of credit draw and various capital leases both of
which are classified by Fitch as long term debt. The outstanding Knapp
Medical Center bonds are variable rate demand bonds supported by a
letter of credit.

Fitch's analysis assumes that line of credit draws are amortized over 30
years with a fixed interest rate of 5%. Historical MADS is estimated to
equal $5.1 million, equating to a light 1.1% of fiscal 2015 operating
revenues. The light debt burden allows for solid MADS coverage despite
modest operating profitability. MADS coverage by operating EBITDA
equaled a strong 5.6x in fiscal 2015.

Subsequent to the completion of the four acquisitions in fiscal 2016,
MADS is estimated to increase to $7.2 million. The increase is due to
expected line of credit draws used to acquire the four hospitals. The
revenue growth associated with the new hospitals mitigates the impact of
the increased debt burden, with the increased MADS equal to 0.9% of pro
forma fiscal 2015 operating revenue (including a hospital donated to PHF
on Dec. 31, 2015 from PHSI, the three hospitals recently acquired in
February 2016 and a fourth hospital expected to be acquired in summer
2016). However, the operating losses at the new hospitals in fiscal 2015
would have materially weakened coverage metrics.

Fitch expects that PHF's light debt burden will be maintained as it
draws upon a $200 million line of credit expected to be entered into in
May 2016. The line of credit draws are expected to be used to fund
future hospital acquisitions and may be converted to permanent debt over
time. The increased consolidated revenue base from the potential
hospital acquisitions should mitigate the impact of the increased debt
from the draws.

MODEST HISTORICAL PROFITABILITY

Historical operating profitability has been light with operating EBITDA
margin averaging 6.3% since fiscal 2012 and equal to 6.0% in fiscal
2015, comparing unfavorably with Fitch's 'BBB' category median of 7.7%.
Historical profitability has fluctuated somewhat, with operating EBITDA
margin ranging from 5.2% to 8.2%, primarily due to the addition of new
hospitals to PHF. PHF grew from three hospitals in fiscal 2012 to seven
hospitals in fiscal 2015. Additionally, operating profitability was
compressed in fiscal years 2014 and 2015 due to lumpiness in the receipt
of California provider tax proceeds. PHF's light operating profitability
is currently mitigated by PHF's light debt burden.

The pro forma impact of the new hospitals (including the hospital
donated on Dec. 31, 2015, the three hospitals recently acquired in
February 2016 and one hospital expected to be acquired in fiscal 2016)
materially compresses operating profitability based on historical
results. However, management is projecting operating EBITDA margin to
increase to 8.0% in fiscal 2016 as PHF's operating improvement
initiatives are implemented at the new hospitals. As previously noted,
the management team has significant experience in turning around
financially distressed hospitals. Fitch expects that consolidated
operating profitability will remain at levels sufficient to provide cash
flows to sustain coverage metrics consistent with the rating category.

STRONG LIQUIDITY RELATIVE TO DEBT

With $214.7 million in unrestricted cash and investments at December 31,
2015, PHF's liquidity metrics are strong relative to its low debt burden
with 250% cash to debt and 42.2x cushion ratio at December 31, 2015,
easily exceeding Fitch's 'BBB' category medians of 89.5% and 11.1x,
respectively. Liquidity relative to operating expenses is solid with
174.2 days cash on hand, exceeding Fitch's 'BBB' category median of
161.5 days. As PHF draws upon the line of credit to acquire additional
hospitals, liquidity metrics relative to debt could be compressed,
however, management is projecting unrestricted liquidity to increase
over the next five years. Additionally, given the current strength of
PHF's liquidity relative to debt, related metrics could compress without
impacting the rating.

DISCLOSURE

PHF is expected to covenant to provide annual disclosure within 150 days
of each fiscal year end and quarterly disclosure within 60 days of each
fiscal quarter end.

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